Can The Rally Drive Another Rally?

Could we actually rally two days in a row? That hasn't happened in almost a month, believe it or not.

More clarity on the Obama administration's bank plan definitely is helping stocks. Treasury Secretary Geithneraddressed the Big Question yesterday on a Charlie Rose interview: how to get banks to actually start selling distressed assets. He said the government would use capital injections as an incentive.

Huh? A couple weeks ago everyone was selling bank stocks because the anticipated dilution from capital injections; now it seems not to be an issue.

Banks are leading the early morning advance, with all the big names up in the mid-single digits.

Elsewhere:

1) Mortgage rates are coming down—an average 30 year fixed rate mortgage fell to a 2-month low of 4.96 percent last week, according to the Mortgage Bankers Association.

2) Speaking of housing, home builder Hovnanian reported a loss of $2.29 per share, much worse than expected. Once again, the main problem is impairment charges, which in plain English means the company is writing down the value of assets—homes and land.

Management noted that the sales environment "remained persistently challenging" and said they were disappointed that the stimulus bill contained no measures to stimulate housing demand.

3) You think we have a stimulus package? The Chinese are spending hundreds of billions on infrastructure projects, far more than we are, and it's already showing up in the numbers. Urban fixed-asset investment increased 26.5 percent, more than the 21.5 percent gain that was expected.

The worries over unrest due to a dramatic drop in factory jobs in the export area also appear to be justified. Exports in China declined in February more than expected, falling 25.7 year-over-year, far more than the 1.0 percent decrease that was expected.

4) UBS posted an $18 billion loss for 2008, more than initially reported and said it remains "extremely cautious" about the outlook for this year.

5) Teen retailer American Eagle reported earnings right in line with estimates, and gave guidance for the first quarter in line with expectations as well. Merchandise margins declined rather steeply due to higher markdowns.

6) Mike Mayo at Deutsche Bank made a point today that we made yesterday: that loan losses are the biggest problem for banks, and would get worse this quarter and the rest of this year. While it's nice to know that Wells Fargo and Citi have been profitable on an operating basis in the first two months, toxic assets have not had a great start to the year.